Video presentation Tokyo, DPetkoski, March 2007 The Role of Business in Development through Multi-stakeholder Partnerships Djordjija Petkoski, Head, Business, Competitiveness & Development World Bank Institute April, 2007

Outline Background: The Big Picture and Global Challenges The Role of Business in Development A New Paradigm: Multi-Stakeholder Partnerships Developing Capacity Capturing the Reality: Best Practices The Importance of Leadership

Background: The Big Picture and Global Challenges

Our world is … … out of balance.

Poverty and Developing Countries Today: 3 billion people (survive on) under $2/day 1.2 billion people (survive on) under $1/day Global Gross Domestic Product (GDP) Year 2000: 30 trillion – 5 billion people – 20% global GDP Year 2050: 140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth) Population Growth 2000 2025 2050 Developing Countries 5 billion 7 billion 8 billion Developed Countries 1 billion

Is This Our World? Every day more than 16,000 children die from hunger-related causes – one child every five seconds. Amount needed to provide basic health and nutrition to everyone in the world = US $13 billion. Amount spent on perfumes in Europe and the US = US $12 billion.

Is This Our World? Amount needed to put every child into school by 2000 = US $950 billion It did not happen. This amount is less than 1% of what the world spent every year on weapons.

Is This Our World? Every day 8,500 people die and 13,000 others are newly infected with HIV. By 2010, more than 25 million children will be orphaned by AIDS worldwide. In some parts of Africa, one-third of all pregnant woman have HIV/AIDS. In Swaziland, for example, nearly 40% of pregnant women are HIV positive.

Is This Our World? 20% of the population in developed nations consumes 86% of the world’s goods. The poorest 20% of the world’s population consumes 1.3%.

Is This Our World? Scientists can calculate, to the nearest planet, how much land and sea it would take to sustain the population of the world if everybody had the same quality of life as those living in the United States, the United Kingdom or France. The answer is …

… Three Planets!!!

Is This Our World? The World Bank estimates that a mild pandemic of Avian Flu would cause at least US$800 billion in global economic damages. World economies would need approximately 3 years to recover from such a shock.

The Role of Business in Development

Video presentation Tokyo, DPetkoski, March 2007 The Role of Business in Development Whose problems are these? Who is responsible? Is it just a money issue? What are the costs? When are we going to pay? How will we pay? How long will we allow this to continue? How long can we afford to live this way?

Financial Flows to Developing Countries Video presentation Tokyo, DPetkoski, March 2007 Financial Flows to Developing Countries $ billions Total net capital flows Net private flows Net official flows Source: Global Development Finance Report, 2005

Rising Influence & Power of the Private Sector   Country/Corporation GDP/Sales ($ million) 1 United States 11,667,510.00 2 Japan 4,623,398.00 3 Germany 2,714,418.00 4 United Kingdom 2,140,898.00 5 France 2,002,582.00 7 China 1,649,329.00 9 Canada 979,764.20 10 India 691,876.30 20 Turkey 301,949.80 21 Austria 290,109.50 22 Wal-Mart Stores 258,681.00 23 Indonesia 257,641.50 24 Saudi Arabia 250,557.30 27 Poland 241,832.50 28 Exxon Mobil 213,199.00 29 South Africa 212,777.30 30 Greece 203,401.00 31 General Motors 195,645.20 32 Finland 186,597.00 35 Ford Motor 164,496.00   Country/Corporation GDP/Sales ($ million) 37 Hong Kong, China 163,004.70 40 General Electric 134,187.00 41 Malaysia 117,775.80 42 Israel 117,548.40 43 ChevronTexaco 112,937.00 49 ConocoPhillips 99,468.00 50 Colombia 97,383.93 51 Pakistan 96,114.84 52 Citigroup 94,713.00 53 Chile 94,104.94 54 Intl. Business Machines 89,131.00 57 American Intl. Group 81,300.00 60 Hewlett-Packard 73,061.00 62 Peru 68,394.96 63 Verizon Communications 67,752.00 64 Ukraine 65,149.34 65 Home Depot 64,816.00 66 Berkshire Hathaway 63,859.00 67 Altria Group 60,704.00 69 Bangladesh 56,844.49 Source: Ranking based on corp. revenue data from Fortune Magazine, October 1, 2005; and GDP data from World Bank World Development Indicators (WDI) Report 2005.

Video presentation Tokyo, DPetkoski, March 2007 Of the 100 largest economies in the world, 51 are corporations; only 49 are countries (based on a comparison of corporate sales and country GDPs). The top 200 corporations’ combined sales are 18 times the size of the combined income of 24% of the total world population. MNCs account for a quarter of global economic activity. Many of the traditional development actors in the public and civil society sectors are recognizing the increasing difficulty of tackling certain global problems in a unilateral manner. There are occasions when the private sector, often in partnership with government, civil society or both, can be better positioned to provide solutions because of its resources (financial and in-kind), power and its management skills.

Video presentation Tokyo, DPetkoski, March 2007 Corporate Philanthropy Evidence of the Importance of Goodwill * Corporate Responsibility & Risk Management, SustainAbility, 2005 Stock Market Value Net Book Value Goodwill % $113 bn $7 bn $106 bn 75% $380 bn $41 bn $339 bn 89% $199 bn $21 bn $178 bn 90% $499 bn $23 bn $476 bn 95% $104 bn $8 bn $96 bn 92% $202 bn $31 bn $171 bn 85% $60 bn $8 bn $52 bn 87% $46 bn $19 bn $27 bn 59% $35 bn $8 bn $28 bn 78% $149 bn $72 bn $77 bn 52% Source: Interbrand/Citibank league table, 2001

Expectations of Business Video presentation Tokyo, DPetkoski, March 2007 Expectations of Business What Do Stakeholders Expect from Business Leaders? * WEF, Voice of the People Survey 2005

Video presentation Tokyo, DPetkoski, March 2007 Rethinking the Role of Business Video presentation Tokyo, DPetkoski, March 2007 There is no common understanding of the role of business in society. The Friedman Approach The social responsibility of business is to increase its profits. In other words, “the business of business is business.” Emerging Thinking “Business is in a unique position to play a leading role in helping to shape the global agenda, and can provide government and civil society with the tools and capabilities to better adapt.” Jonathan Schmidt, Director, Global Agenda, World Economic Forum, WEF, Annual Meeting, Jan. 2006

What Do Business Leaders Think? Video presentation Tokyo, DPetkoski, March 2007 What Do Business Leaders Think? Business Leaders’ Ranking of Top Development Challenges Good Governance & Tackling Corruption Poverty Alleviation & Education Sustained Economic Growth Pace & Security Energy HIV/AIDS Water Human Rights International Trade Rules International Financial Architecture * WEF GCCI Survey 2005

“More than $1 trillion dollars (US$ 1,000 billion) is paid in bribes each year.”

Corruption as a Key Constraint to the Private Sector, by Region Video presentation Tokyo, DPetkoski, March 2007 Corruption as a Key Constraint to the Private Sector, by Region

Challenges to Businesses Businesses must go beyond:      - the generalized debate and simplified messages.      - the "compliance game" and PR.      - defuse unfocused and un-integrated CSR programs. Businesses must define the boundaries of their social and environmental impact. Businesses must connect CSR to corporate strategy. Businesses must prioritize demands for CSR and philanthropic giving. Businesses must deal with "activist organizations" and making them part of the solution.

Reactive to Proactive Strategies Businesses must move from reactive behavior to strategic measures. Businesses must create new strategic opportunities, including stakeholders engagement. Improvements in competitive context - a healthy society as prerequisite to economic success.

A New Paradigm: Multi-Stakeholder Partnerships

A New Paradigm "A multi-dimensional approach...is required to address [development] problems...the private sector is the most important engine of development, but it's also clear that the private sector can't do it on its own. There are critical things that have to be done by the public sector and that's the principal area where the World Bank interacts... governments and donors need to include the business community in policymaking decisions and use [their] expertise and experience in making the right policy choices for a good business environment". World Bank President Paul Wolfowitz, Remarks at the Corporate Council on Africa June 23, 2005.

Video presentation Tokyo, DPetkoski, March 2007 The Need for Multi-Stakeholder Partnerships Economic, environmental, and social issues are becoming too complex and the resources and competencies needed to address them too dispersed for one sector to have all the solutions. There is a growing expectation that the private sector can and will play a role in helping to address these challenges. The critical issue for all stakeholders is to define appropriate and realistic boundaries. Common interests and values.

Incentives for the Private Sector Video presentation Tokyo, DPetkoski, March 2007 Incentives for the Private Sector Investing in a stable and secure environment in which to do business contributes to a healthy and competent workforce, prosperous consumers, a more attractive investment climate, and increased competitiveness. Managing the direct costs and risks of doing business such as environmental degradation, climate change, disease, and ethnic conflict can reduce costs, improve risk and reputation management, improve resource efficiency and enhance productivity. Contributing to sustainable development and being responsible can lead to new business opportunities through innovation, value creation and competitiveness. This is not just a one-sided argument anymore. The private sector is acknowledging and actively engaging in global development challenges at the firm, local, national, regional and global levels, as it realizes the many benefits that arise from doing so.

Stakeholder Roles & Competencies Private Sector Provision of resources Managerial and organizational expertise Utilization of extensive supply chain channels to distribute information and knowledge Innovation Lead by example to put negative perceptions to rest and to build trust Government Foster an environment conducive to CSR. - Policies, legislation, incentives, platforms. Openness to dialogue Willingness to exchange knowledge and capital resources. Lead by example

Roles of Stakeholders Stakeholder Role Civil Society Engage productively with government and business. Share local knowledge, best practices. Build networks Linking of important channels for delivery of social services and development programs to key business and government partners. Media Shaping public opinion IFI/ DA Active mediator among the private sector, the public sector and civil society. Provide the right environment for successful business action by providing a politically-neutral territory. Facilitates across stakeholders and constituents. Enhances the replication of models across other regions and commodity systems (multiplier effect).

The Role of Individuals Today, there is a considerable increase in individual philanthropy. Bill Gates : Not only is he among the richest men in the world, but he is also one of the world’s top philanthropists. Warren Buffett: This famous American investor is the second richest man in the world. He is giving away much of his $44 billion for philanthropic causes. Bill Clinton and The Clinton Global Initiative: Clinton has built his initiative capitalizing on his political clout and connections, fostering leadership and resources to fight HIV/AIDS

Role of the World Bank The World Bank has the potential to provide the right environment for successful private-public partnerships by providing a politically-neutral territory for a meaningful dialogue.

Role of the World Bank The World Bank engages on four levels: Political level: initiating a political dialogue about the importance of private sector involvement. Strategic level: helping to create necessary frameworks (legal & regulatory) to ease private sector participation. Implementation level: providing a connection between the planning, budgeting and implementation process. Operational level: assisting with technical support

The World Bank Institute The capacity building arm of the World Bank that helps countries share and apply global and local knowledge to meet development challenges. WBI's capacity development programs are designed not only to build skills among groups of individuals involved in performing tasks, but also to strengthen the organizations in which they work, and the sociopolitical environment in which they operate. It creates learning opportunities for countries, Bank staff, clients, and people committed to poverty reduction and sustainable development.

World Bank Examples of Multi-Stakeholder Partnership Examples of WBI’s multi-stakeholder partnership programs are: UNICA, the association of sugar industries in Brazil, partners with WBI WBI has been collaborating with the German Chamber of Commerce GAIN Business Alliance on malnutrition and vitamin and mineral deficiencies Business partnerships to fight HIV/AIDS in Ethiopia These programs strengthen the competitive position of the private sector and capacity to address CSR issues.

Video presentation Tokyo, DPetkoski, March 2007 Multi- Stakeholder Partnerships Expertise in private sector development and corporate social responsibility Expertise in malnutrition and vitamin and mineral deficiencies GAIN Business Alliance

BUSINESS COALITION AGAINST HIV/ AIDS Multi- Stakeholder Partnerships Ethiopian Business Coalition Against HIV/AIDS (EBC) World Bank Institute’s (WBI) ACTafrica IFC Against AIDS Donors (i.e. GTZ, DFID) BUSINESS COALITION AGAINST HIV/ AIDS

Challenges Monitoring the impact and effectiveness of multi-stakeholder partnerships. Scaling-up successful multi-stakeholder partnership initiatives. Determining and assessing the governance impact of multi-stakeholder partnerships. Addressing the importance and urgency of facilitating and fostering the success of multi-stakeholder partnerships to effectively deal with complex global development challenges.

Developing Capacity

Finding a common understanding of the role of business in society. Demand for Capacity Development Strengthening the capacity of stakeholders to work together. Rethinking roles and responsibility of each stakeholder. Building committed leadership across sectors. Finding a common language. Creating a safe space and breaking taboos. Fulfilling the need for more research. Developing workable strategies and scaleable solutions. Finding a common understanding of the role of business in society.

Capacity Development Issues Not all stakeholders have the capacity to form and/or sustain partnerships. Issue of access. legal, political, geographical barriers Issue of resources Personnel, capital, knowledge resources Issue of perceptions Mistrust, lack of common language, unequal legitimacy or relevancy

Capturing the Reality: Best Practices

Examples of Best Practices To capture the reality some examples of best practice experiences globally are: BASF Chemical’s “Eco-efficiency centers” in Latin America Natura’s “Ekos Challenge” in Brazil The CEMEX housing program in Mexico “Patrimonio Hoy” Barlays Bank social program globally Citibank’s program for Mexican immigrants in the US SHG “Bank linkage” program in india Bank Rakyat’s microfinance program in Indonesia K-Rep Bank’s microfinance program in Kenya Banco Real/ ABN AMBRO CSR program in Brazil Acer Inc.’s CSR program in China Nirma’s program in India “Making soap powder affordable for the poor”

Capturing Reality in Japan Limited access to best practices of Japan companies as well as companies form other OECD and EDC countries. Better understanding of the Japanese experience and involving Japanese companies can: re-shape the global CSR agenda through improving the framework on how companies can best contribute to development Identify new best practices with practical solutions and scalability potential

The Importance of Leadership

Instead of Conclusions… Do we have the right questions? Old questions still around in different surroundings New questions not yet formulated articulately Need to make them as specific as possible How about the answers? Do NOT over-focus on definite or over generalized answers Dynamic process of continuously addressing the question Build capacity for dealing with the questions through partnerships between government, business, civil society organizations, international financial institutions and development agencies

Video presentation Tokyo, DPetkoski, March 2007 The Role of Leadership “The assumptions, tools and frameworks that leaders have used to make decisions over the past decade appear inadequate. It is imperative for leaders of all walks of life to develop new capabilities if they expect to be successful and to maintain relevance.” Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, WEF Annual Meeting, Jan. 2006

New challenge for current and future business and public sector leaders: how to capitalize on business opportunities while ensuring sustainability through addressing global development challenges?

The future depends on what we do in the present. –Mahatma Gandhi

Thank You ! Djordjija Petkoski, dpetkoski@worldbank.org Program Leader Business, Competitiveness & Development World Bank Institute www.developmentandbusiness.org

Thank you Djordjija Petkoski, Head of Business, Competitiveness & Development; World Bank Institute